EU’s Efficiency in Aiding Developing African Countries

Supervisor: N. Dytianquin

Development Policy

D. Wolff F. Arab M. Broek M. Engelen Pigeonhole: 776 Course: 2.B Date: 19 December 2008 Final Version

Table of Contents


Introduction…………………………………………………………………………………..3 1. The EU Development Policy and Trade in historical perspective…………………………4 2. Policy Process – the Economic Partnership Agreement…………………………………...7

2.1. Agenda-setting…………………………………………………………………...7 2.2. Policy formulation.................................................................................................9 2.2.1. Basis for negotiations with Southern Africa…………………...............9 2.2.2 Negotiations……………………………………………………………10 2.3. Decision-making………………………………………………………..……….11

3. The advantages and shortcomings of aid through trade in the EU Development Policy….11

3.1. The advantages of aid through trade…………………………………………..…12 3.2. The shortcomings of aid through trade…………………………………………..13 4. Case Study – Zimbabwe…………………………………………………………………...16

4.1. The EPA deal between the EU and Zimbabwe…………………………………..17 Conclusion……………………………………………………………………………………21



Introduction Since the beginning of the European Economic Community (EEC) in the 1950s, its number of tasks and influence has grown and expanded. Today, one of the European Union‟s (EU) main responsibilities is assisting the developing world in its struggle to create economic and social stability. The Development policy is considered to be “essential to the eradication of poverty and the achievement of social development” (van Reisen, 1999, p.183). The EU seems to have confidently taken up this major responsibility as it has become the world‟s largest aid donor over the past few years. Each year, the EU spends about 0.43% of its Gross National Product (GNP) which was the equivalent of €47 billion in 2007 and the EU and its Member States are committed to see this number grow (European Union, 2008). A large amount of the aid money is spent on providing clean drinking water and the amelioration of a country‟s infrastructure. Moreover, the EU encourages aid-receiving countries to trade with other developing countries as well as the EU. In order for the developing countries to be able to offer their products on the European market, the EU has removed or reduced many of its trade-barriers and tariffs. The recipients of aid are mostly countries in Africa, the Caribbean and the Pacific. Due to Europe‟s colonial past with Africa, this continent remains the largest recipient. “It can […] be shown that Europe‟s relations with developing countries were built and expanded upon the basis of previous colonial connections” (Mold, 2007, p.31). The EU is also involved with the political development of the developing nations, as it wants to spread European values such as democracy, human rights and rule of law as laid down by the Treaty establishing the European Community (EC). Despite what appears to be the EU‟s unselfish and humanitarian effort to spread its wealth throughout the world, there are many who believe that the EU‟s “aid” policy is merely an excuse for increasing its own wealth and influence in the world (Holland, 2002). Hence the question arises: Is the EU covertly trying to enrich itself at the expense of the poorest inhabitants of this world? ‘Independent Africa stumbled […] development policy emphasized the production of primary commodities for export, often the expense of adequate support for subsistence agriculture. We became subject to the whims of the market without having any say in its functioning.’
(Kofi Annan, Former UN Secretary-General, 2007)


With a focus on EU aid via trade, this paper claims that the EU is choosing power politics over partnership. The main question of this paper is as follows: Is trade an efficient way to support developing African countries? Consequently, first the history of the Development policy will be discussed by mentioning how shortcomings of the EU‟s previous conventions have led to its current policy agreement. Secondly, the policy process will be studied. Thirdly, the advantages and disadvantages of European aid through trade will be taken into account. Furthermore, the case-study of Zimbabwe will illustrate if trade is an efficient way to aid fragile African democracies. This paper will be concluded with an overall evaluation on the efficiency of EU aiding fragile states via trade.

1. The EU Development Policy and Trade in historical perspective The first official notion of some sort of a development policy was mentioned as early as 1950 by former French Prime Minister Robert Schuman. As he stated: “With increased resources Europe will be able to pursue the achievement of one of its essential tasks, namely, the development of the African continent” (Schuman Declaration, 1950). This aim was also included in the Treaty Establishing the EEC, better known as the Treaty of Rome, signed in 1957. However, “the shape and the content of [Europe‟s relations with the developing world] have altered significantly since [...] 1957” (Holland, 2002, p.1). These changes were largely the result of global development, enlargement, the collapse of communist ideology and the World Trade Organization (WTO). During the 1960s the relationship between Europe and former-colonial Africa was restructured through the Yaoundé Convention. The main foundation was the recognition of the national sovereignty which established certain trading arrangements between the EC and 18 African countries. The Convention was based on three distinct traits; Firstly, “a comprehensive character”, secondly “a multilateral framework” and thirdly “its joint institutions” (Ibid, p.28). Despite this, Holland argues that hardly any (economic) progress was being made. “Whilst the free trade principle was seen as assisting development, in practice the limited concessions tended to maintain, even strengthen, the dependency relationship” (Ibid, p.31). The Yaoundé convention was renewed every 5 years until a new Convention replaced Yaoundé: The Lomé Convention. The Lomé Convention (1975-2000) was considered an important step in the EU‟s relation with the Third World as it linked the EU with 71 African, Caribbean and Pacific


(ACP) developing countries. The Member States who signed the Lomé convention were aware of the shortcomings of the previous Convention. Therefore the new convention created a more equal partnership and allowed ACP countries to access the European market, which was considered the main reason why the Yaoundé convention failed to produce significant improvements. For example, products such as sugar could now be sold on the European market at a competitive price. In 1979, Lomé II was signed but again, no major changes were incorporated. Holland argues that Lomé I and II are nothing more than a “watershed in postcolonial relations with the developing world” (Ibid, p.40). In total, the Lomé Convention was renewed 4 times and each time the amount of donation money raised to €12 billion at Lomé IV in 1990. However, this growth did not go smoothly during the economic crisis in Europe in the 1970s. The number of ACP countries also rose during that period to 79 countries. Lomé IV ended in 1999 and was succeeded by the Cotonou Partnership Agreement (CPA) in 2000. Along with the introduction of the CPA it had to be recognized that previous development initiatives by the EU had failed to improve the African economies. Hence, the CPA introduced some drastic changes. First and foremost, development aid was no longer considered a given; when a country failed to respect fundamental human rights its aid could (temporarily) be suspended. Second, the CPA acknowledged the importance of NGO‟s, especially on the implementation process of the policy cycle. Finally, the criteria of the World Trade Organization (WTO) were met through re-introducing reciprocity in preferential trade agreements. Regarding aid via trade, the CPA framework provided new trading agreements between the EU and the ACP countries under Economic Partnership Agreements (EPAs). As Holland argues, the changes made in the area of Development ran parallel with the changes within the EU, “both integration and development policy expanded in scope, content and ambition” (Ibid, p.51). As previously discussed, the EU Development policy has undergone major changes in the past. However, the transition from “particular and specialized arrangements to a contemporary approach” was mostly formed by the Treaties of the 1990s (Holland, 2002, p.140). Most important is the Treaty of Maastricht, as it acknowledged the EU‟s competences for Development and turned it into law. “The Treaty created a constitutional basis for development co-operation policies, and formalizes the existence of a European development policy functioning in liaison with those of Member States, while recognizing their interdependence” (Three-Cs, n/d). The main aspects are the so-called “3Cs”; coordination, complementary and coherence. These C‟s were introduced to bring order in a field dominated not only by the EU, but also International Organizations and Non-Governmental 5

Organizations (NGO‟s) as well as national and regional governments in the ACP –countries. The definitions of the Three C‟s are as follows. Coordination was introduced to ameliorate the cooperation between different organizations so they can “harmonize their policies, programs, procedures and practices so as to maximize the development effectiveness of aid resources” (Three-Cs, n/d). Complementary entails that the Community Development policy “shall be complementary to the policies pursued by the Member States” (Three-Cs, n/d). Subsequently, Coherence is meant to minimize (negative) externalities caused by the policy. The EU development policy has strong ties with other policy areas such as; Common Foreign and Security Policy, Environment policy and Trade. The main aim of EU development policy is to completely wipe out poverty in the developing countries. The EU tries to achieve this goal through the establishment of rule of law, democracy, respect of human rights and fundamental freedoms. When studying the relationship between trade and the European Development Policy, one can see that it has always been heavily criticised for lacking the proof that it contributes to the wealth of the developing nations. Even on the website of the European Commission it is admitted that “trade is not a guaranteed route to economic growth for developing countries” (European Commission External Trade, 2008). However, it is important to keep in mind that as with other policies, the different approaches were a matter of trial-and-error. From the earliest conventions in the 1960s up until the recently implemented EPAs, the EU has had to deal with critique from the Member States, the developing countries and the EU‟s external relations. The main aim of an EPA (EPAs) is as follows: „EPA (EPAs) that would promote poverty reduction, sustainability development and the gradual integration of ACP countries into the world economy and which would bolster regional economic integration‟ (Oxfam, 2008, p.2). Difference with the first conventions is that now the EU realizes that “nonreciprocal tariff- and quota-free access to the European market” is not enough but that “a lack of capacity to trade blocks the path of even the most determined modern developing country entrepreneurialism” (DG Development, 2008). Hence, today trade is specifically aimed at helping developing countries with their capacity to trade (European Commission External Trade, 2008). To understand the current situation of trade within the European Development Policy towards the African countries, one must first understand how the recently implemented EPA came about.


2. Policy Process – the Economic Partnership Agreement (EPA) This section builds upon the previous parts of the paper and aims at analysing the policy making stages of the legal instrument, namely the EPA. The most frequently used model, the policy cycle, is to divide the process into five distinct stages: agenda-setting, policy formulation, decision-making, policy implementation and policy evaluation. The stages model was developed to assist the comprehension of the very complex process of policy making. The following paragraph will start with an examination of the agenda-setting phase.

2.1. Agenda-setting According to the policy stages approach, the agenda „is the list of subjects or problems to which government officials [...] are paying some serious attention at any given time‟ (Kingdon, 1984, pp. 3-4). Meaning that the agenda-setting stage deals with the question why certain items are put on the agenda. Often an item appears on the agenda because governments become aware of certain problems. In these cases it is rarely a simple rational decision – it rather is a result of a complex interaction of various factors. Here the interesting question arises: how did EPAs find their way onto the EU agenda? The EPAs appeared on the agenda during the 1990‟s and this is explainable via a three-level approach focusing on the socio-economic, the political and the public level. In the first place it has to be mentioned that there where internal shortcomings in the previous trade arrangements which needed to be solved in order for it to become more efficient. A second factor can be found at the political level where the WTO pressured the EU to adjust certain elements in the existing arrangements. Thirdly, the demand for fair trade and sustainable development increased among the public, hence the EU was forced to optimise its development policy. A complex interplay between these different factors were crucial for the agenda-setting phase, therefore, each level will be examined in the following paragraphs. The previous EU-ACP trade arrangements have been criticized for being too restricted in three areas: their ambition, scope and perception. Regarding the level of ambition, the EU was too focused on trade between itself and the ACP countries, hence, the focus needed to be shifted to fostering „the smooth and gradual integration of the ACP states into the world economy‟(European Communities, 2002, p. 6). Secondly, the EU needed to broaden its scope, moving forward from an approach which did not prioritize improving access for the ACP countries to the EU market, but towards an approach „enhancing the production, supply and


trading capacity of the ACP countries as well as their capacity to attract investment‟ (Cotonou Partnership Agreement, 2000). Thirdly, the EU was too limited in its perception, because it was merely focusing on increasing the flow of the ACP countries‟ exports to the EU. Apart from the socio-economic reasons, the EPAs where created to ensure conformity with the new WTO rules. Hence, the barriers to trade by both the EU and ACP needed to be dismantled and the element of reciprocity on trade relations between all states, needed to be introduced. Pressured by the WTO, the EU and the ACP countries agreed „to conclude new WTO compatible trading arrangements, removing barriers to trade between them progressively‟ (European Communities, 2002, p.5). In practice this lead to the creation of the EPAs. Another factor is the growing interest of the public for efficient use of development aid. In today‟s global world the public is well informed about the ongoing advancements in this area. The public gains their knowledge via global events like Live Aid Concerts which raises public awareness on insufficiencies within development aid. In general, the public finds aid through trade ineffective since they interpret it as enriching itself at the expense of the poorest inhabitants. In order for the public to gain influence in the decision-making process they gather in organized lobbies and pressure groups. A number of these profit and non-profit organizations approached the EU. An example of such an organization is the Association of European Chambers of Commerce and Industry, which represents 19 million business firms in the EU. This association argues that „trade is at the very heart of development‟ (EUROCHAMBRES, 2008). They want to push for more focus on regional integration which, in turn, leads to more EU investments and the transfer of know-how. The best theory which captures the complexity of these three factors influencing agenda-setting, is the policy window model by Kingdon (1984). According to this theory there are three different streams, namely the policy stream, the political stream and the problem stream which open a policy window when these streams interact with one another. If this is the case, the policy window will open, meaning that the issue will appear high on the EU agenda. The policy stream concerns experts which identify a problem; in this case the identified problem is the socio-economic shortcoming of former trade agreements. Secondly, the political streams are powerful political factors influencing the agenda-setting such as the WTO. Thirdly, the problem stream concerns recognition of problems such as public problems, in this case it is the growing public demand for efficient use of development aid. Consequently, in this case the three streams intersect each other, explaining why the EPAs appeared on the EU agenda. 8

2.2. Policy Formulation The following part elaborates on the formulation phase of the EPAs. The policy formulation phase involves a number of actors which have different powers within the system, mostly due to their authority. Policy formulation can be best described as follows: it is a „process of defining, considering and accepting and rejecting options‟ (Howlett and Ramesh, 2003, p. 143). Additionally, the formulation phase analyses a variety of possibilities when there is a need to solve problems. The coming paragraphs will first study the basis for negotiations with one of the six regions, namely the Southern African Development Community (SADC). However, it should be mentioned that the negation process of the SADC is similar to the ones that the other EPA regions in Africa experienced. Secondly, the negotiations between the different actors and procedures will be examined. Before moving forward it should be mentioned that the EU and the ACP countries can bring in their ideas and experiences on equal terms.

2.2.1. Basis for negotiations with Southern Africa The EPAs are an integral part of the CPA which was signed in 2000 by 15 EU countries and 77 ACP countries. The procedures on EPAs are laid down in Article 37 of the CPA. The negotiations started in 2002 and this was done in two phases. The first phase contained negotiations on issues which were of great concern to all the ACP countries. The framework for this round of negotiations was set out in a directive adopted by the Council of Ministers on 17 June 2002 (Bilal, 2007, p.10). The result of these negotiations was presented by the EC Commissioners for trade and development and the ACP Council of Ministers. Finally, this lead to the adoption of a joint report ACP/00/118/03 Rev.1-ACP-EC/NG/NP/43, which was the end of the first round of negotiations. In the second phase the EU negotiated with each of the six regions individually. The second phase, i.e. the bilateral negotiations between the European Commission and East and South Africa were launched in 2004. At the first regional meeting both sides agreed on a negotiation mandate including the following objectives: sustainable development of the countries, gradual integration into the global economy, and poverty reduction.


2.2.2 Negotiations The general objectives and guidelines on which the negotiations between the EU and the SADC are based, find their origin in the following three documents: the Cotonou Partnership Agreement, the Joint Report adopted in October 2003 and the Joint Road Map between the EPA and the EC agreed on in February 2004. The negotiations took place on two levels: the Ministerial level and the Ambassadorial/Senior Official level. The negotiations on the SADC side were conducted by the Regional Negotiation Forum (RNF). To conduct the EPA negotiations the RNF divided themselves into six different clusters: Development Issues, Market Access, Agriculture, Fisheries, Trade in Services and Trade-Related Issues. Furthermore, the RNF selected six Ambassadors which were located in Brussels and six ministers to lead the negotiations on both levels. On the other side, the negotiations on the EC side were conducted by the European Commission. The Commissioner for Trade represented the ministerial level and the senior official of DG Trade represented the ambassadorial level. Thereby, preparatory discussions between the EC and SADC on a technical level were held before meetings to ensure proper coordination on the senior level. The DG Trade unit was responsible on the side of the EC. The negotiations themselves were divided into three phases. In phase one (March to August 2004) the priorities were set. During this phase the SADC side organised itself according to the structure pointed out above. Thereby, the National Development and Trade Policy Forum (NDTPF) held their first meetings discussing issues like the composition, rules and procedure, work programmes and funding mechanisms. The RNF finalises the work programme and agreed on the composition of the technical expert groups which support the ambassadorial spokesperson. Furthermore, to prepare the negotiations with the EC, three representatives of the NDTPF and a representative from the RNF attended an orientation session in Brussels. This session explains the operations and functions of the EC, including the European Parliament, Council and Commission. Thereafter, a Regional Preparatory Task Force (RPTF) was established containing of people from SADC and the EC to ensure coordination during the negotiations at both levels. The second phase (September 2004 to December 2005) dealt with substantive negotiations. The overall formulation of the EPA outline was agreed on and a number of priority areas were identified, namely, development issues, market access for goods, fisheries and agriculture and SADC regional integration. This phase of the negotiations will be


prepared by ambassadorial and senior level. In the third phase (January 2006 to December 2007) the substantive negotiations continued and the EPA was finalised and ratified by all parties. Additionally, the SADC countries and the EU used this phase to prepare a binding legal text which allows the EPA to come into force in October 2008. Based on the previous paragraphs it can be concluded that the negotiation phase is crucial for the formulation stage. Each part of the EPA was formulated during the negotiation phase on a ministerial level. Thereafter, they were re-negotiated or re-formulated at the ambassadorial and senior level. Thus the negotiations on the ambassadorial and senior level lead to the final policy formulation.

2.3. Decision-making The Council of Ministers has full power within the decision-making phase due to the fact that trade agreements are cooperation‟s outside the ordinary budget (van Reisen, 1999, p. 46). Even though the Council has the final say in the decision-making phase, the negotiation phase was of great importance because this is the place were experts pre-decided on the largest part of the problems. A good way of explaining decision-making in the EU is via the network theory. The network theory „constitutes a variety of separate linking systems between interests within and outside the government‟ (Hill, 2005, p. 68). According to Peterson and Bomberg (1999) decision-making takes place at three levels, making use of a bottom-up approach. The first level contains of the Commission and working groups which set the basis for the European policy. At the second level the policy-making takes place in the Council of Ministers and COROPER. At the third level the final decisions are made by the European Council and the Member States in intergovernmental Conferences.

3. The advantages and shortcomings of aid through trade in the EU Development Policy In the next two sections the advantages and disadvantages of aid through trade will be discussed. This will allow for a balanced conclusion, relating back to the main question of this paper – namely: Is aid through trade an effective and efficient way to support developing African countries? At this point it might be important to mention that trade represents a major pillar of the EU development policy (European Commission, 2008, p. 3). It is intended to enhance the productive capacities and boost economic growth of African countries. Once this


is achieved, an improvement in the standard of living through sustainable development is hoped to follow. The main tools employed expected to increase trade are preferential trade agreements (PTAs), which seek to lower trade barriers – making imports from developing countries more attainable and attractive. This involves the removal of tariffs and custom duties on African goods imported into the EU. However, as is generally known, economic growth is not necessarily coupled with development. This represents another challenge to the EU development policy, which needs to try to achieve the best possible balance between economic growth and sustainable development (European Commission, 2008).

3.1. The advantages of aid through trade Aid through trade as part of the EU development policy theoretically means that the EU will remove custom duties, barriers and tariffs in order to boost trade between the EU and Africa. Such increased trade, import as well as exports, is expected to bring about the typical advantages usually brought about by international trade and free trade. Therefore, the advantages as well as the disadvantages mentioned below are mostly discussed in terms of theoretical economics. First of all, engaging in international trade is known to increase economic welfare due to the fact that the country in question may specialize in goods where it has a comparative advantage. The term “comparative advantage” generally describes the ability of a country to produce a good at a lower opportunity cost than another country (DWAF, 2007). It is generally known that different countries have different factor endowments. Specializing in goods with a comparative advantage increases world output, while countries will be able to consume beyond their Production Possibilities Frontier (PPF). Furthermore, as the country specializes in producing a good where it has a comparative advantage, it may benefit from economies of scale. In this case the production costs of units are spread over the amount of produced goods, eventually lowering the production costs and increasing efficiency. As a consequence the country in question may become more competitive on the international market as quality rises and price decreases. On the other hand, while exports may increase national income, imports are known to increase consumer choice. Through imports products may enter the economy which otherwise would be impossible to produce domestically. This in turn benefits the consumer as he or she will


have a wider variety of goods to choose from, ultimately raising the standard of living of the consumer. Additionally, the increased variety of goods on the market may cause increased competition, as inefficient monopolies are forced out of the market and companies struggle to make their products more attractive. As a consequence the quality of goods may improve as companies are required to operate more efficiently in order to remain on the market. Another factor induced by trade with the EU is innovation. While new goods are entering the African markets, local producers try and produce similar or improved versions of those goods domestically (Holroyd, 2004, p. 28). However, this rarely happens due to reasons discussed in the next section. All the above mentioned advantages of Africa trading with the EU may be utilized in order to fund health, education and infrastructure. The EU development policy emphasizes the importance of sustainable development. It is aware of the fact that only sustainable development can remove the African countries from their aid dependency. Here the multiplier and accelerator effect come into play. The “multiplier effect is the proportion by which an initial increase in injections (G, I or X) causes a greater final increase in the level of national income” (Holroyd, 2004, p. 48). The accelerator on the other hand “is the relationship between a change in the level of national income and the level of investment that this induces” (Holroyd, 2004, p. 48). The interaction of the multiplier and accelerator effect may offer an explanation for the start of slumps and booms. Hopefully for the EU, it will offer an explanation for the latter, thereby making African countries less dependent on foreign aid. In conclusion it can be said that, trade is rightfully one of the main pillars of the EU development policy. Put into practice correctly, the theory as mentioned above may become reality. Without free trade between the EU and Africa there will be a loss of the countries‟ comparative advantages, higher costs to consumers and loss of efficiency and competitiveness. Thus the EU is on the right track. However, what went wrong? What is it that seems to spoil well-meant support from the EU? In the next section the disadvantages of aid through trade shall be examined, hopefully providing an answer so the questions posed above.

3.2. The disadvantages of aid through trade The advantages of aid through trade discussed above gave an overview of what should or could be achieved under optimal conditions. In this section the theoretical framework


established above shall be applied to Africa, while assessing its effectiveness and efficiency in practice. In how far does it facilitate the achievement of aid independence, sustainable development and economic boosts? Aid through trade also has its downsides. This becomes apparent when assessing the effectiveness of the EU development policy in terms of trade. One example is how the EU‟s preferential trade agreements did little to reinforce trading ties with Africa (Evrensel, 2007, p. 6). Since the 1970s (with the exception of oil exporting countries) Africa‟s overall exports and imports to the world have been declining. Some figures show a weak “increase” in exports and imports from and to the EU. However, this is solely due to the general decline in world imports and exports, making the EU figures stand out positively as they declined less sharply compared to the rest of the world (ECIPE, 2007). The figure below (see Figure 1) proves how trade with ACP nations (includes Africa) has been declining. Figure 1. EU’s trade partners (main shares)

Source: Direction of Trade Statistics CD-ROM by the IMF (2005)

The reason for this trend can be found considering the properties of such preferential trade agreements (PTAs). Oftentimes PTAs only foresee a simple reduction of tariff levels. It is frequently argued that such agreements do little to provide significant economic gains to African countries. Instead, they are said to primarily promote political harmony and international “goodwill” between the EU and African nations (McQueen, 1982). Reasons for this include the fact that oftentimes tariffs are already so low that the removal of such tariffs via PTAs becomes highly insignificant. Furthermore, non-tariff barriers have been known to be employed, eliminating the positive effect such a PTA could have had. Non-tariff barriers may include strict regulations on “rules of origin”, environmental and safety standards


(Evrensel, 2007). As a whole this can be regarded as one of the EU‟s disguised protectionist measures. Negative externalities are also known to emerge from within such “trade creating” agreements. In an attempt to improve trade, the EU has been employing trade creating measures. However, these trade creating measures have been acknowledged to come with a bitter aftertaste known as negative externalities. While trade creation is taking place, the environment is taking a high toll as the additional trade brings pollution and labor exploitation with it (Managi & Akira Hibiki, 2006, p. 36). Even though the EU has made it to its priority to remain within the boundaries of sustainable development, not every variable emerging from trade can be monitored. Increased levels of pollution, including air and water contamination due to the lack of regulations, are decreasing the standards of living across Africa (Managi & Akira Hibiki, 2006). In general, opening up previously inward-oriented markets usually involves economic drawbacks in the short-term. One of such problems is known under the term “dumping”. Dumping is generally defined as exporting a product for an “unfairly low” price. This could involve selling the product below production cost or home market price (Deardorff, 2001). Due to the fact that African markets have been opened up for European producers, some local African industries have been adversely affected. While European producers are benefiting from a larger customer base and a way of getting rid of excess production, local African producers are being forced out of business. This can be explained considering that African producers oftentimes cannot compete in terms of quality and costs of production (Ulmer, 2008). Another topic closely linked to the above and worth addressing is the so called worsening “terms of trade”. Terms of trade are known to “measure the rate at which one good is exchanged for another” (Holroyd, 2004, p. 71). Such terms of trade have an impact on a country‟s balance of payments as well as domestic economy. African, non-oil exporting countries have been facing declining terms of trade since the 1970s (Holroyd, 2004, p. 71). This means that in order for them to acquire the same amount of imports they need to sell a larger quantity of exports. The reason for this trend can be discovered considering that most African countries still depend on the production and export of primary goods. Such goods are known to have a low income elasticity of demand. On the other hand, as statistics prove, African countries import a large quantity of manufactured goods – which in turn have a higher (positive) income elasticity of demand. Thus, as world income increases the price for manufactured 15

goods is increasing at a faster rate than primary goods (Holroyd, 2004, p. 72). Responsible for this phenomenon are demand-side as well as supply-side factors. The latter is strongly associated with the EU‟s CAP. While not going further into the CAP, it should be mentioned that the oversupply of agricultural goods in the EU funded through the CAP is further depressing primary product markets in Africa (Bergmann, 2004, p. 7). Hence, due to the fact that demand for primary products is price inelastic, the depressing effect on prices will be enhanced by any increase in supply. In conclusion of this part of the paper it should be reflected on the above mentioned facts: the preferential trade agreements have been rather inefficient. PTAs, being the main tool of the EU to improve trade, have been used by large multinational companies (e.g.) to dump their products in countries all over the African continent. The results, as outlined above, have been economically devastating for the concerned African countries, amongst them Zimbabwe. However, while such drawbacks of the European development policy should be kept in mind, the positive factors should under no circumstance be neglected. To reach a balanced conclusion it is important to point out the positive factors: PTAs have opened up marks, curbed innovation, increased competition, quality, variety and enabled the use of comparative advantages/economics of scale. It can be said that the EU is on the right track by providing help to African countries through trade – however the protectionism has to end in order to achieve a truly progressive policy. Thus, it is in fact a well meant policy with a bitter aftertaste of conditional aid, protectionism and negatively rigid, inflexible characteristics.

4. Case Study - Zimbabwe The following case study on Zimbabwe aims to provide another insight on how the EU aids a developing African country. Currently, Zimbabwe is suffering from a crisis on an economic as well as political level. Thereby, Zimbabwe is confronted with a cholera outbreak which has worsened the situation. Since December of this year the government declared a state of national emergency. The president of Zimbabwe, Robert Mugabe, is only receiving critique and the majority of the world is pressuring him to leave. The growth rate of Zimbabwe was negative with 6 percent, whereas most of the African countries had a growth rate between 6 to 10 percent GDP in the last year. The economy of Zimbabwe is even worse than Somalia, which has failed as a state for the last 19 years (Frazer, 2008). Today, only 20 percent of the population is formally employed, and additionally Zimbabwe has the lowest life expectancy at birth in the world, i.e. 34 years for women and 37 years for men. This is due to the fact that


Zimbabwe has one of the highest HIV and AIDS rates of the world, namely more than 20 percent of the total population (Ploch, 2007). Moreover, Zimbabwe‟s current situation is spiralling out of control and can be described as desperate. Consequently, a lot of development aid is needed for Zimbabwe. The EU is the most important donor of this country. One of the ways in which the EU is trying to aid Zimbabwe is via the EPA. From this, the following question arises: Does the EPA deal between the EU and Zimbabwe pass the development test? The following paragraphs will discuss in whose interest this new trade deal is. This is done through elaborating on eight points which the EU promised to improve the situation via the EPA. These eight points are as follows: regional integration; goods; protection of farmers; infrastructure; access to EU market; foreign investments; trade in services, and; technology and innovation.

4.1. The EPA deal between the EU and Zimbabwe Regional integration of Zimbabwe‟s economy with regional neighbours is very important for developments within the economic market. It gives companies a larger economic market which makes it easier for them to specialise and add value. However, since the six designations of the EPA regions it has only been problematic, because these regions intersect other ongoing regional integration efforts (see Figure 2.).

Figure 2. Regional disintegration in Africa: „initialled‟ trade regimes

Figure 3. Common Market for Eastern and Southern Africa (COMESA)

Source : Oxfam, 2008

Note: The blue part in this figure highlights the area which belongs to the COMESA Source: Institute for Security Studies, 2007


Zimbabwe‟s negotiations for the EPA took place within the framework of the Southern African Development Community (SADC) (see Figure 3.). However, Zimbabwe also belongs to another regional integration effort: the Common Market for Eastern and Southern Africa (COMESA). The fact that there are different agreements between the same regions in Africa and the EU is a hindrance to the creation of a common external tariff. Moreover, the EPA deal regarding regional integration creates enormous barriers for regional partners to integrate and in some cases the EPA even fragments existing regional partners. Besides regional integration major investments need to be made to upgrade Zimbabwe‟s infrastructure, this is critical for the growth of regional and international trade. Zimbabwe needs improvement within the following three sectors: Road sector; Railway sector; and, water sector. In 2006, only 24 percent of its roads were in good condition, 40 percent was in poor condition and there is $1.7 Billion needed to restore it to an overall good condition (Africa Transport Sector, 2006, p. 14). Freight traffic decreased from 14 million tons in 1990 to 6.3 million tons in 2006 and this is mainly due to poor locomotive availability (p. 16). However, if the locomotive availability would have been 100 percent then it would have carried 50 percent more traffic. Thirdly, since the declining economy (1990‟s) the access to water and sanitation services have been declining to about 30 percent below the required level. There is about $10 Billion needed to bring this level back to the required level (p.18). Zimbabwe first needs to overcome this large barrier before it can compete on equal terms with European producers. Zimbabwe will be financially worse off when it trades with Europe under today‟s conditions. The EU provides funds for infrastructure via the European Development Fund (EDF), however the EU only has €23 Billion to spend over the coming 7 years, this budget has to be divided among all the ACP countries. The EU‟s budget for infrastructure is nowhere near sufficient. The increase in foreign investments in Zimbabwe is another important development which the EPA stimulates. Between 1999 and 2005 the foreign investments flows doubled in Zimbabwe from 6.5 to 13.5 as a percentage of gross fixed capital formation (United Nations, 2006). An increase in foreign investment is positive because, at its best, it creates decent jobs, transfer knowledge, generates demand for local producers and it can provide capital when there is not enough. Nevertheless, at its worst, foreign investments lead to human rights violations, effecting the environment in a negative way (negative externalities) and the host country only earns a small percentage of the total profit (capital flight). The negativity of foreign investments particularly applies to the case of mining (Oxfam, 2008). The third largest


sector in Zimbabwe is mining, 90 percent of its production is exported and it amounts for 45 percent of foreign earning. Zimbabwe benefits from foreign investment when it is well managed (Van Harten, 2007). As a next point Zimbabwe‟s access to European markets shall be discussed. The Oxfam Briefing Paper 2008 describes the European markets as only “half open”. Statistics have shown that the goods and services exported to Europe are generally of low value (i.e. primary goods). In order to help Zimbabwe, value needs to be added to its products – resulting in high-value products. Exporting such products then would improve the terms of trade, balance of payments and national income. However, barriers to trade have been preventing this outcome – especially the barriers to trade designed to keep highvalue/processed products out of European markets. Thus a positive relationship between the value of products and tariffs imposed can be observed. This is best depicted with an example: while exporting unprocessed fruit attracts no tariffs, exporting fruit juice triggers a dramatic increase in tariffs – often up to 35 percent. The same holds true for raw and processed sugar (Oxfam 2008, p. 13). Other factors prevent Zimbabwean access to European markets are rules of origin. Another example of restrictive (disguised) protectionist measures, preventing the influx of cheaper products from Zimbabwe. Such rules are hindering Zimbabwe from taking advantage of the available market access. Yet again, an example can be drawn to clarify this point: the EU requires Zimbabwean yarn to be spun by regionally acquired yarn and fabric. Even the workers processing this yarn are not exempt from this rule: they too have to fulfil certain conditions in order to satisfy the strict rules of origin (Naumann, n/d). Finally, another factor significantly reducing the access to European markets is the exacting of standards. Oftentimes standards (e.g. health standards) are raised by as much as it is necessary in order to eliminate a large number of Zimbabwean exports. Illustrating this by an example again, the case of 2002 is of significance. The EU had made new minimum standards for aflatoxins which were even “beyond international recommendations”. They justified this behaviour by the fact that it is in the interest of the European consumers and their health. However, in reality this move only reduced the “incidence of death by two people in a billion” (Oxfam 2008, p. 13). Thus, it had minimum health benefits to the aforementioned consumers and only served as another disguised protectionist measure – decreasing exports of dried fruits and cereals by almost 50 percent (p. 13). Furthermore, through the implementation of non-tariff barriers, the EU, via the EPA stimulates to increase the level of trade between the countries, and, aims to create 19

opportunities for Zimbabwe to develop new industries and increase the number of jobs. 2-20 percent of all the imports are exempted from full opening, these goods are placed on „exclusion lists‟ (Oxfam, 2008). This list is dominated by agricultural products, which is the most important sector of the Zimbabwean economy and accounts for 40 percent of the total export incomes. Thus this list protects Zimbabwe‟s most vulnerable farmers. However, on the other hand, the list does not contain many manufacturing and high valued goods (South Centre, 2008). This in combination with stringent rules on tariffs as discussed earlier in this paper. Hence, the EPA makes it difficult for Zimbabwe to develop new industries and create jobs due to the fact that the deal restricts economic diversification towards high-valued products. Another topic worth touching upon is the overcoming of insecure access to food and support for vulnerable farmers. Statistics show that one in three children, men and women in Africa suffer from hunger and malnutrition as defined by UN. Worsening this trend is the fact that the per capita food production has been declining steadily over the past decade. Climate change is predicted to further depreciate the situation, with desertification and the frequency of natural disasters such as droughts increasing. As a result valuable agricultural (fertile) land will be lost, while growing seasons are getting shorter and yields are lost. Studies have predicted that Zimbabwean rain-fed crops could decrease by up to 50 percent by 2020. The way out: technological innovation as it happened in the green revolution. Amongst other things, drought-resistant plant varieties are vital for Zimbabwe in order to meet the growing demand and lacking supply (Oxfam 2008, p. 32). This approach of technological innovation has proven to be effective in Nigeria (1970s). In this case new varieties of “cassava” were developed by scientists employed in the public sector. As a result yields increased by more than 40 percent, which resulted in a sharp decrease in market prices. This in turn significantly improved food security of many millions (urban as well as rural households). Hence, food insecurity and support for vulnerable farmers is to overcome by means of innovation, research and technology. Unfortunately, this is one of the chronically underfunded sectors within the development efforts of the European Union. A shift of focus needs to be conducted, in order to designate necessary attention and resources to the vital aspect of insecure access to food as well as shortages (Oxfam 2008, p. 13). The current deal forces Zimbabwean firms to, directly, compete under the same rules as European firms. However, without giving Zimbabwean producers the chance to tackle major competitiveness constraints which they are confronted with. Moreover, Zimbabwe needs to overcome trade barriers before they open-up to the European market, because their 20

producers are by far not as strong as some European firms, making it hard to compete on equal terms. The EU is not helping much: it opened up the remaining parts of their markets, but (disguised) barriers remain. Thereby, the deal costs a lot of money for Zimbabwe, but the EU only provides a little part of the finance needed. Moreover, the EPA deal between Zimbabwe and the EU has failed the development test. „Europe will be the biggest Winner. With an economy tottering on the brink of collapse and an unenviable political situation, civil society organisations in Zimbabwe have every reason to worry about the implications of the interim agreement on trade in goods that their country has just signed as part of the Economic Partnership Agreement (EPA) with the European Union (EU).’ (Kwidini, 2008)

Conclusion To conclude, the development policy is probably one of the most contested areas in which the EU is involved. Trade is rightfully one of the main pillars within this policy. Regarding aid via trade, the EU had to overcome a number of obstacles in the last few decades before it came-up with the current approach, namely the Economic Partnership Agreements. The EPAs found their way quickly onto the EU agenda and directly managed to become a priority. Hereby, it should be pointed out that pressure by the WTO and public demand encouraged the EU to revise its previous policies. Meaning that the EU policy process, in this area, makes use of a bottom-up approach. When focusing on the advantages and shortcomings of the EPAs it has to be mentioned that the main aim of the EPA (EPAs) is a good one: it would promote poverty reduction, sustainable development and the integration of African countries, step-by-step, into the world economy via regional economic integration. The main tool to improve trade and reach these goals is, namely, the Preferential Trade Agreement (PTA). Put into practice correctly, free trade between the EU and African countries will open-up markets, curb innovation, increased competition, quality, variety and enabled the use of comparative advantages. Nevertheless, in the current situation the shortcoming of a PTA cannot be ignored. As is already mentioned in theory and illustrated by the case study on Zimbabwe, the protectionism has to end in order to achieve a truly progressive policy. The EU should and has the power to first give producers of the African continent the chance to tackle major


competitiveness constraints, giving them a chance to compete on equal terms with European businesses. Unfortunately, as shown above, this is not the case. Hence, one could argue that the EU is choosing power play above partnership. Only time will show if the EPAs become successful in making African developing countries better off.


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